Oman: Adding capital to the markets

After a period of relative inactivity, Oman’s stock exchange, the Muscat Stock Market (MSM), could be about to see heightened activity with the listing of a number of important companies keenly anticipated.

Of the 168 companies currently listed on the MSM, 51 operate in the financial sector, representing almost one-third of firms on the bourse. It is the industrial sector, however, that dominates the MSM, with the shares of 72 industrial companies registered.

The MSM has also seen market capitalisation rise in 2012, largely due to strong performances of listed firms and capital increases. As of the end of April, the exchange’s market capitalisation had risen to $28.25bn, up $1.3bn since the beginning of the year.

Capitalisation levels are expected to be driven up further by a wave of initial public offerings (IPOs) scheduled throughout 2012, as well as by rights issues from commercial banks, which will be moving to generate more funding to support the introduction of their Islamic banking operations.

Though the MSM has one of the lowest market capitalisation levels in the region, analysts believe this will change in the coming years, particularly with the push by local firms to expand their operations and a broader shift from closed stock and family-owned companies to public entities.

“In the past 12 months, listed companies have shown marginal growth, despite all that has happened regionally and locally,” Ahmed Saleh Al Marhoon, the director-general of the MSM, told OBG. “With new IPOs in 2012, the MSM index is poised to attract more investors, which will increase the MSM’s value and boost the market capitalisation of other listed entities.”

Helping to drive this is the IPO for the newly established Bank Nizwa, Oman’s first Islamic lender. The bank is offering 600m shares to the public, valued at $156m, with both locals and foreign bidders able to buy in. Of the bank’s $390m paid-up capital, 40% will be offered to the public, with the balance brought in by the lender’s 92 founding members. Shares for the bank are scheduled to be listed on the MSM on June 12.

The bank has sought to spread its ownership net as widely as possible, encouraging small investors to participate in the IPO alongside wealthier individuals or institutional investors. Up to 60% of the offer has been reserved for investors applying to acquire 100,000 shares or less, with the remaining 40% allocated for those seeking above that level.

In late April, just after the IPO opened, Ahmed Saif Al Rawahi, the chairman of Bank Nizwa’s founding committee, told local media he was hopeful both for the launch of the bank itself and for the outcome of the offering.

“We believe that our IPO will also receive a good response and we hope that many thousands of Omani investors, large and small, will take this opportunity to share in the potential for success of Islamic banking within the Sultanate,” Al Rawahi said on April 23.

It seems that market observers agree with Al Rawahi. While Bank Nizwa is a new offering without an established record in the finance sector, it should attract a solid level of attention, particularly given the appetite for alternatives to conventional banking, Al Maha Financial Services said in a research note issued in mid-May. Though the Bank Nizwa offering may not generate the high levels of support some other IPOs have enjoyed, it should do well, the advisory said.

“Considering its growth potential, we opine that the valuation based on the expected book value of 2013, on a price-to-book valuation range of 1.2 to 1.4, is justifiable, implying a fair value,” the Al Maha report said.

While Bank Nizwa is dominating IPO news at the moment, it may be sharing the headlines with a number of other offerings in the pipeline. Al Izz Bank and Oman Arab Bank have both been given official clearance to launch offerings, and in late March mining and minerals processor Northern Minerals announced it was considering issuing stock in order to fund its expansion programme.

With Oman’s GDP tipped to rise by 5% or more, and with the disposable incomes of many Omanis increasing, there are hopes that small-scale local investors will start to play a greater role in MSM trading activity. Bank Nizwa’s offering could also tap into a wellspring of previously closed private capital, with the sharia-compliant lender potentially able to attract investors who have been reluctant to purchase conventional shares.

Though the MSM could see its upward momentum disturbed by events beyond Oman’s borders, with any meltdown in the eurozone likely to have an impact on global markets, the Omani exchange and the nation’s economy are developing a resilience that should help both ride out any overseas turbulence.